While the Tax Cuts and Jobs Act (TCJA), enacted at the end of December 2017, promises on the whole to be a positive step for businesses, there remains confusion and continuing uncertainties regarding the interpretation of the legislation which already applies to the 2018 fiscal year.
The TCJA was the first major tax reform enacted in nearly three decades, and the hope was that this act will spur economic growth by encouraging businesses to reinvest money saved on taxes back into their businesses via purchasing of new equipment, employment of more workers, and broadening of business operations.
The IRS is working on implementing this tax legislation that will affect both individuals and businesses but it is a difficult and slow going process. Information and guidance is being released as it becomes available.
In the meantime, many facets of the TCJA are still unclear, lending to much lingering uncertainty regarding how exactly businesses and corporations will be both positively and negatively affected by new provisions. In addition, businesses and corporations will have to determine how the new legislation affects them in other indirect ways, including their property taxes as “property taxes can be one of the largest cost factors” for small businesses, according to the Law Offices of Gary H Smith, P.C. For many, 2018 is likely to be a difficult tax planning year while the kinks are worked out.
The main provisions that will most affect businesses include a reduced corporate tax rate from 35 to 21 percent and a 20% deduction for all pass-through businesses – sole proprietorships, partnerships and S corporations – which make up about 95 percent of businesses nationally. The one exclusion is married individuals who own service-based businesses such as law or accounting firms, doctor’s offices, financial services, brokerage services, or investing and investment management among others.
The reducing of the corporate tax rate was intended to make the United States more hospitable for businesses. Lower taxes will lure larger corporations to set up shop in the USA while encouraging businesses already located here to remain.
Some other issues touched on in the act include the deduction of business interest, expensing of business assets, moving, mileage and travel expenses, financial statement and tax conformity, and the blended corporate tax rate, all of which still require further clarification.
The changes started to take effect at the start of 2018, but it will probably be several more months for businesses to feel the effects, and to understand more precisely how they – and their bottom line – will be affected.